1) Which of the following statements is true about money? A) Money is sometimes viewed as a lubricant that greases the wheels of economic activity B) Without money, most transactions would be very difficult. C) Money influences the behavior of the economy as a whole D) All of the above are true. 2) Which of the following items are NOT considered to be money by all economists? A) Money market accounts B) Certificates of Deposit C) Travelers\' checks D) Stock and bonds 3) All financial securities share the characteristic that they represent a claim to future ownership B) interest income C) cash flows D) dividend payments 4) Holders of exchange their bonds into bonds can shares of the company\'s common stock at a predetermined price. A) investment grade B) callable C) convertible D) junk 5) Transaction costs, portfolio diversification, and asymmetric information all refer to A) the reasons the public prefers indirect finance to direct finance the reasons the public prefers the primary market to the secondary market. C) the reasons the public prefers direct finance to indirect finance D) the reasons the public prefers the secondary market to the primary market. 6) The Glass-Steagall Act A) did not allow commercial banks to give mortgage loans B) did not allow commercial banks to sell T- bills did not allow commercial banks to buy T-bills D) did not allow commercial banks to engage in investment banking Solution (1) (D) Money is the medium of exchange, which impacts economic behavior and without which most transactions will become difficult. (2) (D) Stocks and bonds are capital market instruments which are not included in money. (3) (C) Stocks represent claim in future dividends (a cash inflow) and Bonds represent a claim to future interest payments (a cash inflow). (4) (C) (5) (C) Indirect finance is characterized by high transaction costs, information asymmetry and lack of portfolio diversification. (6) (D).

1. 1) Which of the following statements is true about money? A) Money is sometimes viewed as a
lubricant that greases the wheels of economic activity B) Without money, most transactions
would be very difficult. C) Money influences the behavior of the economy as a whole D) All of
the above are true. 2) Which of the following items are NOT considered to be money by all
economists? A) Money market accounts B) Certificates of Deposit C) Travelers' checks D)
Stock and bonds 3) All financial securities share the characteristic that they represent a claim to
future ownership B) interest income C) cash flows D) dividend payments 4) Holders of exchange
their bonds into bonds can shares of the company's common stock at a predetermined price. A)
investment grade B) callable C) convertible D) junk 5) Transaction costs, portfolio
diversification, and asymmetric information all refer to A) the reasons the public prefers indirect
finance to direct finance the reasons the public prefers the primary market to the secondary
market. C) the reasons the public prefers direct finance to indirect finance D) the reasons the
public prefers the secondary market to the primary market. 6) The Glass-Steagall Act A) did not
allow commercial banks to give mortgage loans B) did not allow commercial banks to sell T-
bills did not allow commercial banks to buy T-bills D) did not allow commercial banks to engage
in investment banking
Solution
(1) (D)
Money is the medium of exchange, which impacts economic behavior and without which most
transactions will become difficult.
(2) (D)
Stocks and bonds are capital market instruments which are not included in money.
(3) (C)
Stocks represent claim in future dividends (a cash inflow) and Bonds represent a claim to future
interest payments (a cash inflow).
(4) (C)
(5) (C)
Indirect finance is characterized by high transaction costs, information asymmetry and lack of
portfolio diversification.
(6) (D)